Analysts said they thought the deal had little to do with potential bids for foreign auto makers. Instead, they said, Geely’s focus is to increase capacity and market the models it currently makes to buyers beyond its domestic market. Geely has announced a goal of selling 250,000 units in 2009, up 22% from total sales in 2008. In the first seven months of 2009, according to a company presentation, Geely reached 65% of its full-year target.

“The management is planning to expand its distribution channel to foreign countries,” said Richard Li, research director at Celestial Asia Securities Holdings. “This deal can provide this company enough funds so that the cash flow will be upgraded in the long term.”

An analysis of sales for the first six months of this year showed that exports accounted for just 5% of Geely’s total sales, compared with close to 20% in 2008.

In the deal, Goldman can covert its bonds into 998.4 million Geely shares priced at 1.90 Hong King dollars each (24 cents), a price that was 6.1% above the closing price of Geely shares on its last trading days. The bonds come due in 2014.

If Goldman were to convert the bonds into shares, it would amount to a 12.1% stake China’s 10th-largest carmaker. A Chinese agency issued a report this month forecasting that Chinese demand for cars was not only robust today, but was on the rise. Hyundai,
Toyota
,
Honda
and
Volkswagen
all saw strong growth from their joint ventures in China. In fact, China’s Association of Automobile Manufacturers estimated that domestic auto sales could exceed 10 million units in the first 10 months of this year.

The Goldman affiliate, GS Capital Partners GI Fund, L.P., a limited partnership established in Delaware, will also receive 299.5 million warrants at an exercise price of 2.30 Hong Kong dollars (29 cents) per share, which can be converted into 229.5 million shares.

Not all analysts who follow Geely were optimistic about the deal.

“It looks like the conditions are not very favorable for Geely,” said Vivien Chan, an analyst at Sinopac Securities Corporation, citing the 3% interest rate on the bonds and the commission price’s low premium. “We need to know what kind of acquisition [it will make] and how the acquisition is going to help their earnings.”

In May, Geely raised 750 million Hong Kong dollars ($96.2 million), which it used both as working capital and to acquire Australian automatic transmission supplier Drivetrain Systems International (DSI) and its assets.